UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington
, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009
OR
o
|
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE TRANSITION PERIOD FROM
TO
Commission File Number: 0-27527
PLUG POWER INC.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
22-3672377
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
|
(I.R.S. Employer
Identification Number)
|
968 ALBANY-SHAKER ROAD
, LATHAM, NEW YORK 12110
(Address of Principal Executive Offices, including Zip
Code)
(518) 782-7700
(Registrants telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files). Yes
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of large accelerated filer, accelerated filer,
non-accelerated filer, and smaller reporting company in Rule 12b-2 of
the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated
filer
o
|
|
Accelerated
filer
x
|
|
Non-accelerated
filer
o
|
|
Smaller reporting
company
o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b
2 of the Exchange Act). Yes
o
No
x
The
number of shares of common stock, par value of $.01 per share, outstanding as
of May 1, 2009 was 129,896,882.
PLUG POWER INC.
INDEX
to FORM 10-Q
2
Plug Power Inc. and
Subsidiaries
(A Development Stage Enterprise)
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
15,997,671
|
$
|
80,844,500
|
|
Trading securities -
auction rate debt securities
|
|
55,700,648
|
|
52,650,654
|
|
Available-for-sale
securities
|
|
72,717,155
|
|
23,843,950
|
|
Accounts receivable, less
allowance of $70,497 in 2009 and $75,148 in 2008
|
|
1,677,353
|
|
2,151,121
|
|
Inventory
|
|
6,843,369
|
|
6,264,372
|
|
Prepaid expenses and other
current assets
|
|
1,581,775
|
|
2,350,738
|
|
|
Total current assets
|
|
154,517,971
|
|
168,105,335
|
Restricted Cash
|
|
1,776,965
|
|
-
|
Property, plant and
equipment, net
|
|
16,798,309
|
|
17,769,974
|
Investment in leased
property
|
|
2,461,526
|
|
-
|
Auction rate debt
securities repurchase agreement
|
|
7,174,352
|
|
10,224,346
|
Intangible assets, net
|
|
12,179,936
|
|
12,843,182
|
Other assets
|
|
201,242
|
|
169,130
|
|
|
Total assets
|
$
|
195,110,301
|
$
|
209,111,967
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
$
|
1,568,865
|
$
|
3,274,972
|
|
Accrued expenses
|
|
4,199,496
|
|
9,945,316
|
|
Borrowings under line of
credit
|
|
62,875,000
|
|
62,875,000
|
|
Current portion long term
debt
|
|
284,638
|
|
-
|
|
Deferred revenue
|
|
4,547,661
|
|
5,425,270
|
|
Other current liabilities
|
|
363,305
|
|
413,837
|
|
|
Total current liabilities
|
|
73,838,965
|
|
81,934,395
|
|
Repayable government
assistance
|
|
199,877
|
|
173,138
|
|
Long term debt
|
|
1,367,807
|
|
-
|
|
Other liabilities
|
|
1,108,822
|
|
1,140,312
|
|
|
Total liabilities
|
|
76,515,471
|
|
83,247,845
|
Stockholders equity:
|
|
|
|
|
|
Common stock, $0.01 par
value per share; 245,000,000 shares authorized;
|
|
|
Issued (including
shares in treasury):
|
|
|
|
129,855,562 at March
31, 2009 and 128,164,003 at December 31, 2008
|
|
1,298,556
|
|
1,281,640
|
|
Additional paid-in capital
|
|
766,983,337
|
|
765,347,706
|
|
Accumulated other
comprehensive loss
|
|
(620,835)
|
|
(359,253)
|
|
Deficit accumulated during
the development stage
|
|
(647,819,834)
|
|
(639,662,385)
|
|
Less common stock in
treasury:
|
|
|
|
|
|
954,667 shares at
March 31, 2009 and 402,114 shares at December 31, 2008
|
|
(1,246,394)
|
|
(743,586)
|
|
|
Total stockholders equity
|
|
118,594,830
|
|
125,864,122
|
|
|
Total liabilities and
stockholders equity
|
$
|
195,110,301
|
$
|
209,111,967
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the
unaudited condensed consolidated financial statements.
3
Plug Power Inc. and
Subsidiaries
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
|
|
|
|
Cumulative
Amounts
|
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
2008
|
|
from Inception
|
Product
and service revenue
|
$
|
1,282,722
|
$
|
850,334
|
$
|
41,391,898
|
Research
and development contract revenue
|
|
1,338,678
|
|
2,886,552
|
|
90,039,933
|
|
|
|
|
|
|
|
Total
revenue
|
|
2,621,400
|
|
3,736,886
|
|
131,431,831
|
Cost
of product and service revenue
|
|
483,515
|
|
1,637,848
|
|
55,454,958
|
Cost
of research and development contract
|
|
|
|
|
|
|
revenue
|
|
2,219,207
|
|
4,973,808
|
|
131,558,618
|
In-process
research and development
|
|
-
|
|
-
|
|
12,026,640
|
Research
and development expense
|
|
4,464,962
|
|
10,036,495
|
|
409,948,221
|
Selling,
general and administrative expenses
|
|
3,238,864
|
|
6,460,787
|
|
131,670,055
|
Goodwill
impairment
|
|
-
|
|
-
|
|
45,842,656
|
Amortization
of intangible assets
|
|
506,198
|
|
575,002
|
|
19,469,756
|
|
|
|
|
|
|
|
Operating
loss
|
|
(8,291,346)
|
|
(19,947,054)
|
|
(674,539,073)
|
Interest
and other income and net realized gains
|
|
|
|
|
|
|
(losses) from available-for-sale securities
|
|
430,192
|
|
2,120,925
|
|
47,922,076
|
Change
in fair value of auction rate securities repurchase agreement
|
|
(3,049,994)
|
|
-
|
|
7,174,352
|
Net
unrealized gains (losses) on trading securities
|
|
3,049,994
|
|
-
|
|
3,049,994
|
Impairment
loss on available-for-sale securities
|
|
-
|
|
(2,794,646)
|
|
(10,224,346)
|
Interest
and other expense
|
|
(296,295)
|
|
(106,911)
|
|
(2,625,087)
|
|
|
|
|
|
|
|
Loss
before equity in losses of affiliates
|
|
(8,157,449)
|
|
(20,727,686)
|
|
(629,242,084)
|
Equity
in losses of affiliates
|
|
-
|
|
-
|
|
(18,577,750)
|
|
|
|
|
|
|
|
Net
loss
|
$
|
(8,157,449)
|
$
|
(20,727,686)
|
$
|
(647,819,834)
|
|
|
|
|
|
|
|
Loss
per share:
|
|
|
|
|
|
|
Basic
and diluted
|
$
|
(0.06)
|
$
|
(0.24)
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares
|
|
|
|
|
|
|
outstanding
|
|
128,472,637
|
|
88,071,196
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the
unaudited condensed consolidated financial statements.
4
Plug Power Inc. and
Subsidiaries
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
Three months ended
March 31,
|
Cumulative
Amounts
from Inception
|
|
|
2009
|
|
2008
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
Net
loss
|
$
|
(8,157,449)
|
$
|
(20,727,686)
|
$
|
(647,819,834)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
932,790
|
|
1,061,087
|
|
39,361,512
|
Equity
in losses of affiliates
|
|
-
|
|
-
|
|
18,577,750
|
Amortization
of intangible asset
|
|
506,198
|
|
575,002
|
|
19,469,756
|
Noncash
prepaid development costs
|
|
-
|
|
-
|
|
10,000,000
|
Loss
on disposal of property, plant and equipment
|
|
-
|
|
-
|
|
37,213
|
In-kind
services
|
|
-
|
|
-
|
|
1,340,000
|
Stock-based
compensation
|
|
469,122
|
|
1,219,825
|
|
43,777,553
|
Provision
for bad debts
|
|
70,497
|
|
-
|
|
238,315
|
Amortization
of deferred grant revenue
|
|
-
|
|
-
|
|
(1,000,000)
|
Amortization
and write-off of deferred rent
|
|
-
|
|
-
|
|
2,000,000
|
Goodwill
impairment charge
|
|
-
|
|
-
|
|
45,842,656
|
Impairment
loss on available-for-sale securities
|
|
-
|
|
2,794,646
|
|
10,224,346
|
Net
unrealized (gains) losses on trading securities
|
|
(3,049,994)
|
|
-
|
|
(3,049,994)
|
Change
in fair value of auction rate debt securities repurchase agreement
|
|
3,049,994
|
|
-
|
|
(7,174,352)
|
Gain
on termination of repayable government assistance
|
|
-
|
|
-
|
|
(1,232,522)
|
In-process
research and development
|
|
-
|
|
-
|
|
7,042,640
|
Changes
in assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
Accounts
receivable
|
|
399,822
|
|
240,714
|
|
(765,688)
|
Inventory
|
|
(578,997)
|
|
(806,843)
|
|
(5,648,634)
|
Prepaid
expenses and other current assets
|
|
731,062
|
|
1,005,107
|
|
(2,573,302)
|
Accounts
payable and accrued expenses
|
|
(6,302,853)
|
|
(1,231,770)
|
|
(1,263,833)
|
Deferred
revenue
|
|
(877,475)
|
|
377,203
|
|
5,549,433
|
Net
cash used in operating activities
|
|
(12,807,283)
|
|
(15,492,715)
|
|
(467,066,985)
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
Cash
paid for acquisitions, net
|
|
-
|
|
-
|
|
(19,267,125)
|
Purchase
of property, plant and equipment
|
|
(14,809)
|
|
(570,153)
|
|
(38,357,030)
|
Investment
in leased property
|
|
(2,461,526)
|
|
-
|
|
(2,461,526)
|
Restricted
cash
|
|
(1,776,965)
|
|
-
|
|
(1,776,965)
|
Proceeds
from disposal of property, plant and equipment
|
|
-
|
|
-
|
|
344,216
|
Purchase
of intangible asset
|
|
-
|
|
-
|
|
(9,624,500)
|
Investment
in affiliate
|
|
-
|
|
-
|
|
(1,500,000)
|
Proceeds
from maturities and sales of available-for-sale securities
|
|
22,942,507
|
|
122,998,448
|
|
2,619,141,965
|
Purchases
of available-for-sale securities
|
|
(71,880,092)
|
|
(67,261,648)
|
|
(2,754,571,396)
|
Net
cash (used in) provided by investing activities
|
|
(53,190,885)
|
|
55,166,647
|
|
(208,072,361)
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
Proceeds
from issuance of common and preferred stock
|
|
-
|
|
-
|
|
428,529,602
|
Proceeds
from initial public offering, net
|
|
-
|
|
-
|
|
201,911,705
|
Stock
issuance costs
|
|
-
|
|
-
|
|
(5,548,027)
|
Purchase
of treasury stock
|
|
(502,808)
|
|
(45,838)
|
|
(1,121,450)
|
Proceeds
from stock option exercises and employee stock purchase plan
|
|
38,471
|
|
128,162
|
|
11,483,696
|
Cash
released from escrow
|
|
-
|
|
-
|
|
-
|
Repayment
of loans due to General Hydrogen Shareholders
|
|
-
|
|
-
|
|
(400,000)
|
Proceeds
from borrowings under line of credit
|
|
-
|
|
|
|
62,875,000
|
Proceeds
from long term debt
|
|
1,652,445
|
|
-
|
|
1,652,445
|
Repayment
of government assistance
|
|
-
|
|
-
|
|
(2,235,244)
|
Principal
payments on long-term debt and capital lease obligations
|
|
-
|
|
-
|
|
(6,786,687)
|
Net
cash provided by financing activities
|
|
1,188,108
|
|
82,324
|
|
690,361,040
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
(36,769)
|
|
(77,877)
|
|
775,977
|
Increase
(decrease) in cash and cash equivalents
|
|
(64,846,829)
|
|
39,678,379
|
|
15,997,671
|
Cash and cash equivalents, beginning of period
|
|
80,844,500
|
|
12,076,938
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
$
|
15,997,671
|
$
|
51,755,317
|
$
|
15,997,671
|
The accompanying notes are an integral part of the
unaudited condensed consolidated financial statements.
5
Plug Power Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Nature of
Operations
Description of
Business
Plug
Power Inc. is a development stage enterprise involved in the design,
development and manufacture of fuel cell systems for industrial-motive
(forklift or material handling) markets and stationary power markets worldwide.
The Company is a development stage enterprise because substantially all of the
Companys resources and efforts are aimed at the discovery of new knowledge
that could lead to significant improvement in fuel cell reliability and
durability, and the establishment, expansion and stability of markets for the
Companys products. The Company continues to experience significant net
outflows of cash from operations and devotes significant efforts towards
financial planning in order to forecast future cash spending and the ability to
continue product development, manufacturing and sales activities. Fuel cell
technology within the Companys targeted markets material handling, remote
prime power, residential combined heat and power and wireless and wireline
telecommunications - is still early in the technology adoption life cycle.
The
Company is focused on proton exchange membrane, or PEM, fuel cell and fuel
processing technologies and fuel cell/battery hybrid technologies, from which
multiple products are available. A fuel cell is an electrochemical device that
combines hydrogen and oxygen to produce electricity and heat without
combustion. Hydrogen is derived from hydrocarbon fuels such as natural gas,
propane, methanol, ethanol, gasoline or biofuels. Hydrogen can also be obtained
from the electrolysis of water. Hydrogen can be purchased directly from
industrial gas providers or can be produced on-site at consumer locations.
The
Company sells its products worldwide through a product sales force. The Company
sells to business, industrial and government customers.
The
Company was organized in the State of Delaware on June 27, 1997 and became
listed on the NASDAQ exchange on October 29, 1999. The Company was originally
formed as a joint venture between Edison Development Corporation and Mechanical
Technology Incorporated. In 2007 the Company merged with and acquired all the
assets, liabilities and equity of Cellex Power Products, Inc. (Cellex) and
General Hydrogen Corporation (General Hydrogen).
Unless
the context indicates otherwise, the terms Company, Plug Power, we, our
or us as used herein refers to Plug Power Inc. (the registrant) and its
subsidiaries.
Although
the Company has a significant amount of available-for-sale securities, as
described further below, as of March 31, 2009, neither the Company nor any
of its subsidiaries was an investment company pursuant to the Investment
Company Act of 1940, as amended.
Liquidity
The
Company anticipates incurring substantial additional losses over at least the
next several years and believes that its current cash, cash equivalents,
trading securities and available-for-sale securities balances will provide
sufficient liquidity to fund operations for at least the next twelve months.
The Companys cash requirements depend on numerous factors, including
completion of our product development activities, our ability to commercialize
our energy products, market acceptance of our systems and other factors. The
Company expects to devote substantial capital resources to continue its
development programs directed at commercializing our energy products for worldwide
use, hiring and training production staff, develop and expand manufacturing
capacity and continue expanding our production and research and development
activities. The Company expects to pursue the expansion of its operations
through internal growth and strategic acquisitions and expects that such
activities will be funded from existing cash, cash equivalents, trading
securities, available-for-sale securities, and the issuance of additional
equity or debt securities or additional borrowings subject to market and other
conditions. The failure to raise the funds necessary to finance future cash
requirements or consummate future acquisitions could adversely affect the
Companys ability to pursue its strategy and could negatively affect its
operations in future periods.
6
Included
in trading securities and working capital at March 31, 2009 and March 31, 2008,
respectively, is $55.7 million and $52.7 million of auction rate debt
securities. The auction rate debt securities are secured by student loans which
are generally guaranteed by the Federal government. These auction rate debt
securities are structured to be tendered at par, at the investors option, at
auctions occurring every 27-30 days. However, due to the liquidity issues in
the credit and capital markets, the market for auction rate debt securities
began experiencing auction failures in February 2008 and there have been no
successful auctions for the securities held in our portfolio since the failures
began. We continue to receive interest on these securities, subject to an
interest rate cap formula for each security as periodically adjusted in
accordance with the respective securities agreement. At March 31, 2009, the
interest rates ranged from 0% to 13.0% on the auction rate debt securities as
compared to the interest rate range at December 31, 2008 from 1.55% to 3.43%.
In December 2008, the Company entered into a
Repurchase Agreement with a third-party lender such that the Company may
require the third-party lender to repurchase the auction rate debt securities
pledged as collateral for the Credit Line Agreement (See Note 10, Credit Line
Agreement and Auction Rate Debt Securities Repurchase Agreement), at their par
value, from June 30, 2010 through July 2, 2012. The fair value of the
Repurchase Agreement at its origination was $10.2 million and was recorded as
income in the December 31, 2008 consolidated statement of operations.
2. Basis of
Presentation
Principles
of Consolidation:
The
accompanying unaudited condensed interim consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions have been eliminated in consolidation. It
is the Companys policy to reclassify prior period consolidated financial
statements to conform to current period presentation.
Interim Financial Statements
:
The unaudited condensed
interim consolidated financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. In the opinion
of management, all adjustments, which consist solely of normal recurring
adjustments, necessary to present fairly, in accordance with U.S. generally accepted accounting principles, the financial position, results of operations and
cash flows for all periods presented, have been made. The results of operations
for the interim periods presented are not necessarily indicative of the results
that may be expected for the full year.
Certain
information and footnote disclosures normally included in annual consolidated
financial statements prepared in accordance with U.S. generally accepted
accounting principles have been condensed or omitted. These unaudited condensed
consolidated financial statements should be read in conjunction with the
Companys audited consolidated financial statements and notes thereto included
in the Companys Annual Report on Form 10-K filed for the fiscal year ended
December 31, 2008.
The
information presented in the accompanying condensed consolidated balance sheet
as of December 31, 2008 has been derived from the Companys
December 31, 2008 audited consolidated financial statements. All other
information has been derived from the Companys unaudited condensed
consolidated financial statements for the periods as of and ending March 31,
2009 and 2008.
Use of Estimates:
The unaudited condensed interim consolidated financial
statements have been prepared in conformity with U.S. generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements:
In May 2008, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 162, The
Hierarchy of Generally Accepted Accounting Principles. This new standard
identifies the sources of accounting principles and the framework for selecting
the accounting principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (GAAP) in the United States. This new standard
mandates the GAAP hierarchy reside in the accounting literature as opposed to
the audit literature. This has the practical
7
impact of elevating
FASB Statements of Financial Accounting Concepts in the GAAP hierarchy. SFAS
No. 162 is effective 60 days after the SECs approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles. The Company does not believe adoption of this new standard will
have a material effect on its condensed consolidated financial position, condensed
consolidated results of operations, or liquidity.
In
January 2009, the FASB released Staff Position SFAS 107-b and Accounting
Principles Board (APB) Opinion No. 28-a, Interim Disclosures about Fair Value
of Financial Instruments (SFAS 107-b and APB 28-a). This proposal amends FASB
Statement No. 107, Disclosures about Fair Values of Financial Instruments, to
require disclosures about fair value of financial instruments in interim
financial statements as well as in annual financial statements. The proposal
also amends APB Opinion No. 28, Interim Financial Reporting, to require those
disclosures in all interim financial statements. This proposal is effective for
interim periods ending after June 15, 2009, but early adoption is permitted for
interim periods ending after March 15, 2009. The Company plans to adopt SFAS
107-b and APB 28-a and provide the additional disclosure requirements for the
quarter ending June 30, 2009.
In
March 2009, the FASB released Staff Position SFAS 157-e, Determining Whether a
Market Is Not Active and a Transaction Is Not Distressed (SFAS 157-e). This
proposal provides additional guidance in determining whether a market for a financial
asset is not active and a transaction is not distressed for fair value
measurement purposes as defined in SFAS 157, Fair Value Measurements. SFAS
157-e is effective for interim periods ending after June 15, 2009, but early
adoption is permitted for interim periods ending after March 15, 2009. The
Company plans to adopt the provisions of SFAS 157-e during the quarter ending
June 30, 2009 and does not believe adoption of this new standard will have a
material effect on its condensed consolidated financial position, condensed
consolidated results of operations, or liquidity.
In
March 2009, the FASB issued Staff Position SFAS 115-a, SFAS 124-a, and EITF
99-20-b, Recognition and Presentation of Other-Than-Temporary Impairments. This
proposal provides guidance in determining whether impairments in debt
securities are other than temporary, and modifies the presentation and
disclosures surrounding such instruments. This Proposed Staff Position is
effective for interim periods ending after June 15, 2009, but early adoption is
permitted for interim periods ending after March 15, 2009. The Company plans to
adopt the provisions of this Proposed Staff Position during the quarter ending
June 30, 2009 and does not believe adoption of this new standard will have a
material effect on its condensed consolidated financial position, condensed
consolidated results of operations, or liquidity.
3. Fair Value
Measurements
The
Company adopted SFAS No. 157, Fair Value Measurements on January 1,
2008, for financial assets and financial liabilities. SFAS No. 157 defines
fair value, provides guidance for measuring fair value, and requires certain
disclosures. The Company adopted Financial Accounting Standards Board Staff
Position (FSP) No. 157-2, Effective Date of FASB Statement No. 157 on
January 1, 2009, for nonfinancial assets and nonfinancial liabilities. The
adoption of this standard had no impact on the Companys condensed consolidated
financial statements for the quarter ended March 31, 2009.
SFAS
No. 157 discusses valuation techniques, such as the market approach
(comparable market prices), the income approach (present value of future income
or cash flow), and the cost approach (cost to replace the service capacity of
an asset or replacement cost). The statement utilizes a fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value
into three broad levels. The following is a brief description of those three
levels:
Level
1 Inputs Level 1 inputs are unadjusted quoted prices in active markets for
assets or liabilities identical to those to be reported at fair value. An
active market is a market in which transactions occur for the item to be fair
valued with sufficient frequency and volume to provide pricing information on
an ongoing basis.
Level
2 Inputs Level 2 inputs are inputs other than quoted prices included within
Level 1. Level 2 inputs are observable either directly or indirectly. These
inputs include: (a) Quoted prices for similar assets or liabilities in
active markets; (b) Quoted prices for identical or similar assets or
liabilities in markets that are not active, such as when there
8
are few transactions for
the asset or liability, the prices are not current, price quotations vary
substantially over time or in which little information is released publicly;
(c) Inputs other than quoted prices that are observable for the asset or
liability; and (d) Inputs that are derived principally from or
corroborated by observable market data by correlation or other means.
Level
3 Inputs Level 3 inputs are unobservable inputs for an asset or liability.
These inputs should be used to determine fair value only when observable inputs
are not available. Unobservable inputs should be developed based on the best
information available in the circumstances, which might include internally
generated data and assumptions being used to price the asset or liability.
When
determining the fair value measurements for assets or liabilities required or
permitted to be recorded at and/or marked to fair value, the Company considers
the principal or most advantageous market in which it would transact and
considers assumptions that market participants would use when pricing the asset
or liability. When possible, the Company looks to active and observable markets
to price identical assets. When identical assets are not traded in active
markets, the Company looks to market observable data for similar assets.
Nevertheless, certain assets are not actively traded in observable markets and
the Company must use alternative valuation techniques to derive a fair value
measurement.
The
following table summarizes the bases used to measure certain financial assets
at fair value on a recurring basis in the consolidated balance sheet:
Basis of Fair Value
Measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active
Markets for Identical
Items
|
Significant Other
Observable Inputs
|
Significant
Unobservable Inputs
|
Balance at March 31, 2009
|
Total
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
Trading securities auction
rate debt securities
|
|
$
|
55,700,648
|
|
|
|
|
|
$
|
55,700,648
|
Available-for-sale securities
|
|
$
|
72,717,155
|
|
$
|
72,717,155
|
|
|
|
|
Auction rate debt securities
repurchase agreement
|
|
$
|
7,174,352
|
|
|
|
|
|
$
|
7,174,352
|
|
|
|
|
|
|
|
|
|
The
following tables show reconciliations of the beginning and ending balances for
assets measured at fair value on a recurring basis using significant
unobservable inputs (i.e. Level 3) for the three months ended March 31, 2009:
Auction Rate Debt Securities
|
|
|
|
|
|
Fair Value
Measurements Using
Significant
Unobservable Inputs
|
Beginning of period
|
|
$
|
52,650,654
|
Net gains (losses) on trading securities for the three months ended March 31,
2009
|
|
|
3,049,994
|
|
|
|
|
Fair value of trading securities - auction rate debt securities at
March 31, 2009
|
|
$
|
55,700,648
|
|
|
|
|
9
Auction Rate Debt Securities Repurchase Agreement
|
|
|
|
|
|
|
Fair Value
Measurements Using
Significant
Unobservable Inputs
|
|
Beginning of period
|
|
$
|
10,224,346
|
|
Change in fair value of auction rate securities repurchase agreement
|
|
|
(3,049,994
|
)
|
|
|
|
|
|
Fair value of auction rate debt securities repurchase agreement at March 31,
2009
|
|
$
|
7,174,352
|
|
|
|
|
|
|
The
following summarizes the valuation technique for assets measured and recorded
at fair value:
Available-for-sale
securities: For our level 1 securities, which represent Federal treasury
securities, fair value is based on quoted market prices.
Trading
securities auction rate debt securities and auction rate debt securities
repurchase agreement: The securities valued using unobservable inputs were the
auction rate debt securities and auction rate debt securities repurchase
agreement as the financial and capital markets have experienced significant
dislocation and illiquidity in regard to these types of instruments and there
is currently no secondary market for these types of securities. There have been
no successful auctions since early 2008. The valuation of these auction rate
debt securities and auction rate debt securities repurchase agreement is an
estimate based upon factors specific to these securities, including duration,
tax status (taxable or tax-exempt), credit quality, the existence of insurance
wraps, and the composition of the underlying student loans (Federal Family
Education Loan Program or private loans). Assumptions were made about future
cash flows based upon interest rate formulas as described above. Also, the
valuation included estimates of market data including yields or spreads of
similar trading instruments, when available, or assumptions believed to be
reasonable for non-observable inputs such as likelihood of redemption.
Actual transactions involving these securities and/or future valuations could
differ from the estimated fair value of these securities at March 31, 2009.
4.
Earnings Per Share
The
Company reports net loss per basic and diluted common share in accordance with
SFAS No. 128, Earnings Per Share, which establishes standards for
computing and presenting loss per share. Basic earnings per common share are
computed by dividing net loss available to common stockholders by the weighted
average number of common shares outstanding during the reporting period,
adjusted for unvested restricted stock. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock (such as convertible preferred stock, stock options, unvested
restricted stock, and warrants) were exercised or converted into common stock
or resulted in the issuance of common stock (net of any assumed repurchases)
that then shared in the earnings of the Company, if any, computed by dividing
net earnings by the combination of dilutive common share equivalents, comprised
of shares issuable under outstanding warrants and the Companys share-based
compensation plans, and the weighted average number of common shares
outstanding during the reporting period. Since the Company is in a net loss
position, all common stock equivalents would be considered to be anti-dilutive
and are, therefore, not included in the determination of diluted earnings per
share. Accordingly, basic and diluted loss per share are the same.
10
The
following table provides the components of the calculations of basic and
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(8,157,449
|
)
|
|
$
|
(20,727,686
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares
|
|
|
128,472,637
|
|
|
|
88,071,196
|
|
The
dilutive potential common shares are summarized as follows:
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2009
|
|
2008
|
Stock options
|
|
6,128,761
|
|
4,825,782
|
Unvested restricted stock
|
|
10,000
|
|
843,473
|
Preferred stock
(1)
|
|
-
|
|
39,500,000
|
Warrants
(2)
|
|
571,429
|
|
571,429
|
|
|
|
|
|
|
|
6,710,190
|
|
45,740,684
|
|
|
|
|
|
(1)
|
The preferred stock amount represents the dilutive potential
common shares of the 395,000 shares of Class B capital stock issued on
June 29, 2006, which were converted into 39,500,000 shares of common
stock in December 2008.
|
(2)
|
The warrants were granted to the shareholders of General
Hydrogen as part of the acquisition of that company.
|
5. Intangible
Assets
The gross carrying amount and accumulated amortization
of the Companys acquired identifiable intangible assets related to Cellex and
General Hydrogen as of March 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Amortization Period
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
|
Effect of
Foreign Currency
Translation
|
|
Total
|
Acquired Technology
|
|
8 years
|
|
$
|
15,900,000
|
|
$
|
(4,105,672
|
)
|
|
$
|
(374,809
|
)
|
|
11,419,519
|
Customer Relationships
|
|
8 years
|
|
|
1,000,000
|
|
|
(239,583
|
)
|
|
|
|
|
|
760,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,900,000
|
|
$
|
(4,345,255
|
)
|
|
$
|
(374,809
|
)
|
$
|
12,179,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
6. Stockholders
Equity
Changes
in stockholders equity for the three months ended March 31, 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-in-Capital
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
Accumulated
During the
Development
Stage
|
|
|
Total
Stockholders'
Equity
|
|
Total
Comprehensive
Loss
|
December 31, 2008
|
128,164,003
|
|
$
|
1,281,640
|
|
$
|
765,347,706
|
|
$
|
(359,253)
|
|
402,114
|
|
$
|
(743,586)
|
|
$
|
(639,662,385)
|
|
$
|
125,864,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(8,157,449)
|
|
(8,157,449)
|
|
(8,157,449)
|
Foreign currency translation loss
|
-
|
|
-
|
|
-
|
|
(197,202)
|
|
-
|
|
-
|
|
-
|
|
(197,202)
|
|
(197,202)
|
Unrealized loss on available-for-sale
securities
|
-
|
|
-
|
|
-
|
|
(64,380)
|
|
-
|
|
-
|
|
-
|
|
(64,380)
|
|
(64,380)
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,419,031)
|
Stock based compensation
|
1,585,568
|
|
15,856
|
|
1,528,580
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,544,436
|
|
|
Stock issued under employee stock
purchase plan
|
105,991
|
|
1,060
|
|
107,051
|
|
-
|
|
-
|
|
-
|
|
-
|
|
108,111
|
|
|
Treasury stock purchases
|
-
|
|
-
|
|
-
|
|
-
|
|
552,553
|
|
(502,808)
|
|
-
|
|
(502,808)
|
|
|
March 31, 2009
|
129,855,562
|
|
$
|
1,298,556
|
|
$
|
766,983,337
|
|
$
|
(620,835)
|
|
954,667
|
|
$
|
(1,246,394)
|
|
$
|
(647,819,834)
|
|
$
|
118,594,830
|
|
|
7. Supplemental
Disclosures of Cash Flows Information
The
following represents required supplemental disclosures of cash flows
information and non-cash financing and investing activities which occurred
during the three months ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2009
|
|
|
March 31,
2008
|
|
Stock-based compensation accrual impact
|
|
$
|
1,144,954
|
|
|
$
|
77,119
|
|
Change in unrealized gain/loss on available-for-sale securities
|
|
|
(64,380
|
)
|
|
|
(79,221
|
)
|
8.
Repayable Government Assistance
During
the year ended December 31, 2000, the Companys wholly-owned subsidiary,
Plug Power Canada Inc., formerly known as Cellex Power Products Inc., entered
into an Industrial Research Assistance Program (IRAP) Repayable Contribution
Agreement with the National Research Council of Canada (NRC) under which it
received contributions totaling Cdn$500,000 for certain development activities.
The agreement with the NRC provides for payment of royalties of up to 170% of
the contributions received subject to certain conditions, payable quarterly,
calculated at 3.5% of gross revenues. Plug Power Canadas repayment obligation
to the NRC exists from July 1, 2002 to March 31, 2009. If by
April 1, 2009, the total amount repaid to the NRC is less than the
Cdn$500,000 contribution, then Plug Power Canada will continue to make the
payments to the NRC until either the full Cdn$500,000 is repaid or until July 1,
2012, whichever comes first. The maximum liability under this repayment
obligation is Cdn$850,000. If at any point Plug Power Canadas repayments reach this amount, the obligation shall cease.
The
Company has recorded the estimate of amounts owed under this arrangement as a
debt, which includes accrued interest that is determined based on imputed
interest rates. Royalty payments are recorded as a reduction of the debt.
Accordingly, liabilities relating to this agreement, including imputed
interest, in the amount of $199,877 and $252,070 have
12
been recorded as
repayable government assistance and current portion of repayable government
assistance (other current liabilities), respectively, in the consolidated
balance sheets as of March 31, 2009 and $173,138 and $369,331 have been
recorded as repayable government assistance and current portion of repayable
government assistance (other current liabilities), respectively, in the consolidated
balance sheets as of December 31, 2008. The imputed interest is recorded
as interest expense in the condensed consolidated statements of operations.
General
Hydrogen Corporation and its wholly owned subsidiary General Hydrogen (Canada) Corporation, and Cellex Power Products, Inc. each entered into agreements with
Technology Partnerships Canada (TPC) during the year ended December 31,
2005 for the development of early market fuel cell applications. On
December 31, 2007, General Hydrogen Corporation merged with Plug Power
Inc. and, subsequently, Plug Power Inc. contributed the wholly owned subsidiary
General Hydrogen (Canada) Corporation to Plug Power Canada Inc. On
January 1, 2008, General Hydrogen (Canada) Corporation, Plug Power Canada
Inc. and Cellex Power Products, Inc. amalgamated as Plug Power Canada
Inc.
On
September 30, 2008, Plug Power Inc., Plug Power Canada Inc., and TPC
entered into Assumption and Termination Agreements related to both the Cellex
TPC Agreement and the General Hydrogen TPC Agreement. In consideration of the
Assumption and Termination Agreements, Plug Power Inc. and Plug Power Canada
Inc agreed to pay $2,235,244 to TPC. As a result of this agreement, during
the third quarter of 2008, the Company recorded a gain on the termination of
these agreements in the amount of $1,232,522 in interest and other income and
net realized gains from available-for-sale securities in the consolidated
statements of operations.
9. Restructuring
Charges
On
June 10, 2008, the Company adopted a restructuring plan to become a market
and sales driven organization. The Company has refocused on the GenDrive motive
power product where there has been significant customer interest in fuel cell
power units. As part of the restructuring, the Company has reduced its
workforce, cut back discretionary spending, and deferred non strategic
projects. As a result of changes in original estimates, the Company recorded an
adjustment to accrued restructuring charges in the amount of $22,737 within
selling, general and administrative expenses in the condensed consolidated
statement of operations for the three months ended March 31, 2009. At March 31,
2009, $364,100 remains in accrued expenses on the condensed consolidated
balance sheet.
The
accrued restructuring charges relating to the June 2008 restructuring are
comprised of the following at March 31, 2009:
|
|
Accrued
restructuring
|
|
Adjustments to
accrued
|
|
|
|
|
Accrued
restructuring
|
|
|
charges at
January 1, 2009
|
|
restructuring
charges
|
|
Cash Payments
|
|
charges at
March 31, 2009
|
Personnel Related
|
|
$
|
38,621
|
|
$
|
(22,737)
|
|
$
|
(15,884)
|
|
$
|
|
Contract Cancellation
|
|
|
364,100
|
|
|
|
|
|
|
|
|
364,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
402,721
|
|
$
|
(22,737)
|
|
$
|
(15,884)
|
|
$
|
364,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
December 18, 2008, the Company adopted a restructuring plan intended to focus
the Company on revenue growth, improve organizational efficiency and position
the Company for long-term profitability. As part of this plan, the Company
implemented a reduction in workforce by eliminating 90 positions in addition to
terminating purchase commitments and charging off inventory related to lapsed
product lines. As a result of changes in original estimates, the Company
recorded an adjustment to accrued restructuring charges in the amount of
$113,632 within selling, general and administrative expenses in the condensed
consolidated statement of operations for the three months ended March 31, 2009.
At March 31, 2009, $1,201,487 remains in accrued expenses on the condensed
consolidated balance sheets.
13
The
accrued restructuring charges related to the December 2008 restructuring are
comprised of the following at March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
restructuring
|
|
Adjustments to
accrued
|
|
|
|
|
Accrued
restructuring
|
|
|
charges at
January 1, 2009
|
|
restructuring
charges
|
|
Cash Payments
|
|
charges at
March 31, 2009
|
Personnel Related
|
|
$
|
2,653,597
|
|
$
|
(113,632)
|
|
$
|
(2,476,598)
|
|
$
|
63,367
|
Contract Cancellation
|
|
|
1,336,767
|
|
|
|
|
|
(198,647)
|
|
|
1,138,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,990,364
|
|
$
|
(113,632)
|
|
$
|
(2,675,245)
|
|
$
|
1,201,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Credit Line Agreement and Auction Rate Debt
Securities Repurchase Agreement
In
December 2008, the Company entered into a Credit Line Agreement with a
third-party lender with a maximum availability of $62.9 million. As of March
31, 2009 and December 31, 2008, the Company has drawn down $62.9 million on
this line of credit. The Companys auction rate debt securities included
in trading securities on the condensed consolidated balance sheets are pledged
as collateral for the Credit Line Agreement. The fair value of the
auction rate debt securities is $55.7 million and $52.7 million at March 31,
2009 and December 31, 2008, respectively. The Credit Line Agreement bears
interest at a variable rate equal to the average rate of interest earned by the
Company on the auction rate debt securities pledged as collateral for the
Credit Line Agreement. The interest rate on the line of credit advances was 1.4%
and 2.4% at March 31, 2009 and December 31, 2008, respectively. Interest
accrued on the advances on the Credit Line Agreement was $228,000 at March 31,
2009.
The
advances on the Credit Line Agreement are repayable on demand by the
third-party lender. If the third-party lender exercises its right to demand
repayment of the advances under the Credit Line Agreement prior to June 30,
2010 (the date upon which the Company can first exercise its rights under the
Repurchase Agreement discussed below), the third-party lender is required to
arrange alternative financing on terms substantially the same as the Credit
Line Agreement or the third party lender must repurchase the auction rate debt
securities pledged as collateral for the Credit Line Agreement at their par
value, which is $62.9 million at both March 31, 2009 and December 31, 2008.
In
December 2008, the Company also entered into a Repurchase Agreement with the
third-party lender such that the Company may require the third-party lender to
repurchase the auction rate debt securities pledged as collateral for the
Credit Line Agreement, at their par value, from June 30, 2010 through July 2,
2012 as full settlement for the advances on the Credit Line Agreement.
The Company has elected to record this item at its fair value in accordance
with SFAS No. 159. At March 31, 2009 and December 31, 2008 the fair value
of this item is approximately $7.2 million and $10.2 million, respectively, and
is recorded as an asset on the condensed consolidated balance sheets. The
change in the fair value of the Repurchase Agreement for the three months ended
March 31, 2009 was $3.0 million and is recorded as a net unrealized loss on the condensed consolidated statements of
operations.
11. Debt
In March,
2009, the Company signed a $1.7 million promissory note issued by Key
Equipment Finance Inc. for the purpose of financing its investment in equipment
which will be leased to its customer, Central Grocers, beginning on April 1, 2009. Monthly
installments of $32,900 are due through March 2014 and the note bears interest at
a fixed rate of 7.23% per annum on a 360-day year. The Company was required to pledge
$1.8 million in cash to collateralize the debt. This note is also secured by equipment
that will be leased to Central Grocers as described in the Master Security
Agreement and Collateral Schedule No. 01 dated as of March 20, 2009, together
known as the Master Security Agreement.
The
outstanding balance of the debt as of March 31, 2009 is $1.7 million and
is recorded as current portion of long term debt and long term debt in the
condensed consolidated balance sheets. Restricted cash and the amount of the
corresponding pledge requirement as of March 31, 2009 was $1.8 million and
is recorded as restricted cash in the condensed consolidated balance sheets. Principal
payments due on long-term debt over the next five years are as follows: 2010, $227,000;
2011, $323,000; 2012, $347,000; 2013, $373,000; and 2014 $98,000.
14
MANAGEMENT
S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with our accompanying
unaudited condensed consolidated financial statements and notes thereto
included within this report, and our audited consolidated financial statements
and notes thereto included in our Annual Report on Form 10-K filed for the
fiscal year ended December 31, 2008. In addition to historical
information, this Form 10-Q and the following discussion contain statements
that are not historical facts and are considered forward-looking within the
meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. These forward-looking statements contain projections of our
future results of operations or of our financial position or state other
forward-looking information. In some cases you can identify these statements by
forward-looking words such as anticipate, believe, could, estimate,
expect, intend, may, should, will and would or similar words. We
believe that it is important to communicate our future expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or control and that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Investors are cautioned not to rely on forward-looking statements because they
involve risks and uncertainties, and actual results may differ materially from
those discussed as a result of various factors, including, but not limited to:
the risk that our restructurings result in greater restructuring charges or
less cost savings than anticipated; the risk that unit orders will not ship, be
installed and/or convert to revenue, in whole or in part; our ability to
develop commercially viable energy products; the cost and timing of developing
our energy products; market acceptance of our energy products; our ability to
manufacture energy products on a large-scale commercial basis; competitive
factors, such as price competition and competition from other traditional and
alternative energy companies; the cost and availability of components and parts
for our energy products; the cost and availability of fuel and fueling
infrastructures for Plug Power's energy products; the ability to raise and
provide the necessary capital to develop, manufacture and market our energy
products; our ability to establish relationships with third parties with
respect to product development, manufacturing, distribution and servicing and
the supply of key product components; our ability to protect our intellectual
property; our ability to lower the cost of our energy products and
demonstrate their reliability; the cost of complying with current and future
governmental regulations; fluctuations in the trading price and volume of our
common stock; and other risks and uncertainties discussed, but are not limited
to, those set forth in Item 1A Risk Factors in our Annual Report on Form
10-K for the fiscal year ended December 31, 2008, as filed on
March 16, 2009 as updated by Part II, Item 1A of this Form 10-Q.
Readers should not place undue reliance on our forward-looking statements.
These forward-looking statements speak only as of the date on which the
statements were made and are not guarantees of future performance. Except as
may be required by applicable law, we do not undertake or intend to update any
forward-looking statements after the date of this Form 10-Q.
Overview
Plug
Power Inc. is a development stage enterprise involved in the design,
development and manufacture of fuel cell systems for industrial-motive
(forklift or material handling) markets and stationary power markets worldwide.
The Company is a development stage enterprise because substantially all of the
Companys resources and efforts are aimed at the discovery of new knowledge
that could lead to significant improvement in fuel cell reliability, durability
and affordability, and the establishment, expansion and stability of markets
for the Companys products. We are focused on proton exchange membrane, or PEM,
fuel cell and fuel processing technologies and fuel cell/battery hybrid
technologies, from which multiple products are available.
The
Company continues to experience significant net outflows of cash from
operations and devotes significant efforts towards financial planning in order
to forecast future cash spending and the ability to continue product research
and development activities. We continue to survey the market to determine the
most solid path to profitability for Plug Power. Currently, the Companys primary
focus and resources are placed on our GenDrive solution for the material
handling market. Fuel cell technology within the Companys targeted market,
material handling power, and secondary markets, remote prime, residential and
backup power, is still early in the technology adoption life cycle.
15
We
currently offer our hydrogen fueled GenDrive power unit for commercial sale to
material handling (forklift) applications, with a focus on multi-shift high
volume manufacturing and high throughput distribution sites. We have sold, on
commercial terms, two product offerings to target customers including Wal-Mart,
Bridgestone Firestone and Nestle Waters. Our shipments to Central Grocers and
Sysco Foods involve greenfield conversion sites. Greenfield sites offer
the potential for the greatest financial benefits to our customers by
eliminating the need for customers to make capital investments in batteries and
the associated chargers, storage and changing systems.
Additionally,
we continue to develop our low-temperature remote-prime, and high-temperature
residential GenSys continuous power products. Our low-temperature GenSys unit
successfully completed a field trial in rural India in 2008. It is offered
commercially to remote telecommunications providers whose sites are located
where the grid is unreliable or non-existent. Our high-temperature GenSys unit
will be tested by the U.S. Department of Energy and National Grid during field
trials in 2009. Learning from the trial will help determine system refinements
for incorporation into the next-generation system design.
In
2008, manufacturing and sales support was given to our GenCore product which
provides backup power to businesses and government in critical infrastructure,
specifically in the wireless and wireline telecommunications market. We
continue to work with certain established customers on future initiatives
related to this product.
As an
extension of our GenSys development work, we developed technology in support of
the automotive fuel cell market under a series of agreements with Honda R&D
Co Ltd. of Japan (Honda), a subsidiary of Honda Motor Co., Ltd. In 2009 we will
continue to provide service for the current model of the Home Energy Station
located at Hondas Torrance, California facility.
We
also form relationships with customers and enter into development and
demonstration programs with government agencies and other energy providers.
Many of our initial sales of GenCore, GenDrive and GenSys products are
contract-specific arrangements containing multiple obligations that may include
a combination of fuel cell systems, continued service, maintenance, a supply of
hydrogen and other support. The multiple obligations within our contractual
arrangements are not accounted for separately based on our limited commercial
experience and lack of evidence of fair value for the separate elements. As a
result, we defer recognition of product and service revenue and recognize
revenue on a straight-line basis over the contractual terms as the continued
service, maintenance and other support obligations expire, which are generally for
periods of twelve (12) to thirty (30) months or in some cases as long as eight (8)
years. See Critical Accounting Policies and EstimatesRevenue Recognition.
Our customers have no special right of return, price protection allowances or
other sales incentives. We do offer a discount from our manufacturers
suggested retail price to resellers to allow for the mark-up of the reseller.
As we
gain experience, including field experience relative to service and warranty of
our initial products, the fair values for the multiple elements within our
future contracts may become determinable and we may, in future periods,
recognize product revenue upon delivery or installation of the product, or we
may continue to defer recognition, based on application of appropriate guidance
within EITF 00-21, Accounting for Revenue Arrangements with Multiple
Deliverables, or changes in the manner in which we structure contractual
agreements, including our agreements with distribution partners.
Recent
Developments
Goodwill
Impairment.
The Company performs its
annual goodwill assessment under SFAS 142 at the date of its fiscal year
end. As a result of this assessment, during the fourth quarter of 2008,
the Company determined that a goodwill impairment had occurred and recorded a
non-cash goodwill impairment charge of $45.8 million in the consolidated statement
of operations.
16
Credit
Line Agreement and Auction Rate Security Repurchase Agreement.
In December
2008, the Company entered into a Credit Line Agreement with a third-party
lender with a maximum availability of $62.9 million. As of December 31,
2008, the Company has drawn down $62.9 million on this line of credit.
The Companys auction rate debt securities included in trading securities on
the condensed consolidated balance sheets are pledged as collateral for the
Credit Line Agreement. The fair value of the auction rate debt securities
is $55.7 million and $52.7 million at March 31, 2009 and December 31, 2008,
respectively. The Credit Line Agreement bears interest at a variable rate equal
to the average rate of interest earned by the Company on the auction rate debt
securities pledged as collateral for the Credit Line Agreement. The interest
rate on the line of credit advances was 1.4% and 2.4% at March 31, 2009 and
December 31, 2008, respectively. Interest accrued on the advances on the
Credit Line Agreement was $228,000 at March 31, 2009.
The
advances on the Credit Line Agreement are repayable on demand by the third-party
lender. If the third-party lender exercises its right to demand repayment of
the advances under the Credit Line Agreement prior to June 30, 2010 (the date
upon which the Company can first exercise its rights under the Repurchase
Agreement discussed below), the third-party lender is required to arrange
alternative financing on terms substantially the same as the Credit Line
Agreement or the third party lender must repurchase the auction rate debt
securities pledged as collateral for the Credit Line Agreement at their par
value, which is $62.9 million at both March 31, 2009 and December 31, 2008.
In
December 2008, the Company also entered into a Repurchase Agreement with the
third-party lender such that the Company may require the third-party lender to
repurchase the auction rate debt securities pledged as collateral for the
Credit Line Agreement, at their par value, from June 30, 2010 through July 2,
2012 as full settlement for the advances on the Credit Line Agreement.
The Company has elected to record this item at its fair value in accordance
with SFAS No. 159. At March 31, 2009 and December 31, 2008 the fair value
of this item is approximately $7.2 million and $10.2 million, respectively, and
is recorded as an asset on the condensed consolidated balance sheets. The
change in the fair value of the Repurchase Agreement for the three months ended
March 31, 2009 was $3.0 million and is recorded as a net unrealized loss on the condensed consolidated statements of
operations.
Debt.
In March, 2009, the Company signed a
$1.7 million promissory note issued by Key Equipment Finance Inc. for the
purpose of financing its investment in property which will be leased to Central
Grocers beginning on April 1, 2009. Monthly installments of $32,900 are due
through March 2014 and the note bears interest at a fixed rate of 7.23% per
annum on a 360-day year. The Company was required to pledge $1.8 million in
cash to collateralize the debt. This note is also secured by equipment that
will be leased to Central Grocers as described in the Master Security Agreement
and Collateral Schedule No. 01 dated as of March 20, 2009, together known as
the Master Security Agreement.
The
outstanding balance of the debt as of March 31, 2009 is $1.7 million and
is recorded as current portion of long term debt and long term debt in the
condensed consolidated balance sheets. Restricted cash and the amount of the
corresponding pledge requirement as of March 31, 2009 was $1.8 million and
is recorded as restricted cash in the condensed consolidated balance sheets.
Principal payments due on long-term debt over the next five years are as
follows: 2010, $227,000; 2011, $323,000; 2012, $347,000; 2013, $373,000; and
2014 $98,000.
Restructuring.
On June 10, 2008, the Company
adopted a restructuring plan to become a market and sales driven organization.
The Company has refocused on the GenDrive motive power product where there has
been significant customer interest in fuel cell power units. As part of the
restructuring, the Company has reduced its workforce, cut back discretionary
spending, and deferred non strategic projects. As a result of changes in
original estimates, the Company recorded an adjustment to accrued restructuring
charges in the amount of $22,737 within selling, general and administrative
expenses in the condensed consolidated statement of operations for the three
months ended March 31, 2009. At March 31, 2009, $364,100 remains in accrued
expenses on the condensed consolidated balance sheet.
On
December 18, 2008, the Company adopted a restructuring plan intended to focus the
Company on revenue growth, improve organizational efficiency and position the
Company for long-term profitability. As part of this plan, the Company
implemented a reduction in workforce by eliminating 90 positions in addition to
terminating purchase commitments and charging off inventory related to lapsed
product lines. As a result of changes in original estimates, the Company
recorded an adjustment to accrued restructuring charges in the amount of
$113,632 within selling, general and administrative expenses in the condensed
consolidated statement of operations for the three months ended March 31, 2009.
At March 31, 2009, $1,201,487 remains in accrued expenses on the condensed
consolidated balance sheets.
17
Class
B Stock Conversion.
On December
23, 2008, the Company announced the sale by Smart Hydrogen Inc. to OJSC (Third
Generation Company of the Wholesale Electricity Market) ("OGK-3") of
all 395,000 shares of the Company's Class B Capital Stock as well as 5,126,939
shares of the Company's common stock, the automatic conversion of the
Company's Class B Capital Stock into 39,500,000 shares of common stock, and the
termination of all the rights and obligations attached to the Class B Capital
Stock. The rights and obligations attached to the Class B Capital Stock that
terminated include but are not limited to the right to appoint directors, veto
rights and voting support obligations under the Investor Rights Agreement dated
as of June 29, 2006, as amended (the "Investor Rights Agreement").
OGK-3 has executed a joinder agreement to the Investor Rights Agreement and is
prohibited from transferring its shares of the Company's Common Stock to a
competitor of the Company. OGK-3 is also bound by the same standstill
provisions that applied to Smart Hydrogen, as set forth in the Investor Rights
Agreement. This transfer and conversion triggered a change of control pursuant
to Section 17 of our 1999 Stock Option and Incentive Plan; and, therefore, each
outstanding stock option automatically became fully exercisable and
conditions and restrictions on each outstanding restricted stock award,
deferred stock award and performance share award that relates solely to the
passage of time and continued employment were removed.
Results of
Operations
Product
and service revenue.
We defer
recognition of product and service revenue at the time of shipment and
recognize revenue as the continued service, maintenance and other support
obligations expire.
Many of our initial
sales of product contain multiple obligations that may include a combination of
fuel cell systems, continued service, maintenance, fueling and other support.
While contract terms generally require payment shortly after shipment or
delivery and installation of the fuel cell system and are not contingent on the
achievement of specific milestones or other substantive performance, the
multiple obligations within our contractual arrangements are generally not
accounted for separately based on our limited experience and lack of evidence
of fair value of the different components. As a result, we defer recognition of
product and service revenue and recognize revenue on a straight-line basis as
the continued service, maintenance and other support obligations expire, which
are generally for periods of twelve to thirty months, or in some cases as long
as eight years. In the case of our limited consignment sales, we do
not begin recognizing revenue on a deferred basis until the customer has
accepted the product, at which time the risks and rewards of ownership have
transferred, the price is fixed and we have a reasonable expectation of
collecting upon billing.
Product
and service revenue for the three months ended March 31, 2009 increased
approximately $432,000, or 51%, to $1.3 million from approximately $850,000 for
the three months ended March 31, 2008. The increase is primarily related
to increased revenue from prior period system shipments now being recognized as
well as an increase in non-deferred revenue. The non-deferred revenue
represents revenue associated with replacement parts or services not covered by
service agreements or other similar types of sales where the Company has no
continuing obligation after the parts are shipped or delivered or after
services are rendered.
In the
product and service revenue category, during the three months ended
March 31, 2009, we shipped 153 fuel cell systems (13 are related to sales
to end customers and 140 were delivered to Central Grocers under a lease
arrangement whereby Plug Power retains title and ownership of the equipment and
revenue recognition will not begin until the second quarter of 2009) as
compared to 56 fuel cell systems shipped during the three months ended March
31, 2008. In the three months ended March 31, 2009, we recognized approximately
$226,000 of revenue for products shipped or delivered or services rendered in
the three months ended March 31, 2009, which includes approximately $210,000 of
non-deferred revenue as compared to approximately $160,000 of revenue recognized
in the three months ended March 31, 2008 for products shipped or delivered or
services rendered in the three months ended March 31, 2008, which includes
approximately $109,000 of non-deferred revenue. Additionally, in the three
months ended March 31, 2009 we recognized approximately $1.1 million of
product and services revenue from fuel cell shipments made prior to 2009,
whereas in the three months ended March 31, 2008 we recognized approximately
$690,000 of product and service revenue from fuel cell shipments made prior to
2008.
18
Research and development contract revenue.
Research and development contract revenue primarily
relates to cost reimbursement research and development contracts associated
with the development of PEM fuel cell technology. We generally share in the
cost of these programs with our cost-sharing percentages generally ranging from
20% to 50% of total project costs. Revenue from time and material contracts is
recognized on the basis of hours expended plus other reimbursable contract
costs incurred during the period. Revenue from fixed fee contracts is
recognized on the basis of percentage of completion. We expect to continue
certain research and development contract work that is directly related to our
current product development efforts.
Research
and development contract revenue for the three months ended March 31, 2009
was $1.3 million compared to $2.9 million for the three months ended March 31, 2008.
The decrease of $1.5 million or 53.6% is primarily related to the completion
and near completion of funded projects in both the United States and Canada.
Cost
of product and service revenue.
Cost
of product and service revenue includes the direct material cost incurred in
the manufacture of the products we sell as well as the labor and material costs
incurred for product maintenance, replacement parts and service under our
contractual obligations.
Cost of product and service
revenue for the three months ended March 31, 2009 decreased $1.2 million
to approximately $484,000 compared to $1.6 million in the three months ended
March 31, 2008. The decrease is related to the accounting treatment for the product
and service fuel cell system shipments for the first quarter of 2009. Although
product and service fuel cell system shipments were 153 for the three months
ended March 31, 2009 as compared to 56 for the three months ended March 31,
2008, 140 of the 153 shipments will be accounted for under a lease arrangement
commencing in the second quarter of 2009. Therefore, no cost of product and
service revenue was recognized on those shipments in the three months ended
March 31, 2009.
Cost
of research and development contract revenue
. Cost of research and development contract revenue includes costs
associated with research and development contracts including: cash and non-cash
compensation and benefits for engineering and related support staff, fees paid
to outside suppliers for subcontracted components and services, fees paid to
consultants for services provided, materials and supplies used and other
directly allocable general overhead costs allocated to specific research and development
contracts.
Cost of research and development contract revenue for
the three months ended March 31, 2009 decreased $2.8 million, or 55.4%, to
$2.2 million compared to $5.0 million in the three months ended March 31, 2008.
This decrease reflects a reduced effort on funded contracts due to the
completion or near completion of several major contracts in the United States and Canada.
Research
and development expense.
Research and
development expense includes: materials to build development and prototype
units, cash and non-cash compensation and benefits for the engineering and
related staff, expenses for contract engineers, fees paid to outside suppliers
for subcontracted components and services, fees paid to consultants for
services provided, materials and supplies consumed, facility related costs such
as computer and network services, and other general overhead costs associated
with our research and development activities.
Research
and development expense decreased to $4.5 million for the three months ended
March 31, 2009 compared to $10.0 million in the three months ended March
31, 2008. This decrease was a direct result of the corporate restructuring
plans announced in June and December of 2008, which included a reduced
workforce and a reduction in non-strategic research and development projects.
19
Selling,
general and administrative expenses.
Selling, general and administrative expenses includes cash and non-cash
compensation, benefits and related costs in support of our general corporate
functions, including general management, finance and accounting, human
resources, selling and marketing, information technology and legal services.
Selling,
general and administrative expenses for the three months ended March 31, 2009 decreased
to $3.2 million compared to $6.5 million in the three months ended March 31,
2008. This decrease was a direct result of the corporate restructuring plans
announced in June and December of 2008.
Amortization
of intangible assets.
Amortization of
intangible assets represents the amortization associated with the Companys
acquired identifiable intangible assets from Cellex and General Hydrogen,
including acquired technology and customer relationships, which are being
amortized over eight years.
Amortization
of intangible assets was approximately $506,000 for the three months ended
March 31, 2009, compared to $575,000 for the three months ended
March 31, 2008. The decrease is related to foreign currency fluctuations.
Interest and other income and net realized
gains/(losses) from available-for-sale securities.
Interest and other income and net realized
gains/(losses) from available-for-sale securities consists primarily of
interest earned on our cash, cash equivalents, available-for-sale and trading securities,
other income, and the net realized gain/loss from the sale of
available-for-sale securities.
Interest
and other income and net realized gains/(losses) from available-for-sale
securities decreased to approximately $430,000 for the three months ended March 31,
2009 from $2.1 million for the three months ended March 31, 2008. This
decrease is primarily related to lower cash balances coupled with lower yields
on our investments due to a declining rate environment. Total net realized
gains/losses from the sale of available-for-sale securities was $0 for the
three months ended March 31, 2009 and a net gain of $392,000 for the three
months ended March 31, 2008. Interest income on trading securities for the
three months ended March 31, 2009 was $308,000.
Impairment
loss on available-for-sale securities.
Due to the liquidity issues in the credit and capital markets, the market for
auction rate debt securities began experiencing auction failures in February
2008, and there have been no successful auctions for the securities held in our
portfolio since the failures began. Given the lack of liquidity in the market
for auction rate debt securities, the Company concluded that the estimated fair
value of these securities had become lower than the cost of these securities,
and, based on an analysis of the other than temporary impairment factors, management
determined that this difference represented a decline in fair value that was
other than temporary. Accordingly, the Company recorded an other than temporary
impairment charge of $2.8 million in the three months ended March 31, 2008 in
the condensed consolidated statements of operations.
As a
result of the Repurchase Agreement entered into with a third party lender in
December 2008, the Company reclassified the auction rate debt securities from
available-for-sale securities to trading securities. The net unrealized gains
on trading securities for the three months ended March 31, 2009 was $3.0
million.
Interest
and other expense.
Interest and other
expense consists of interest on repayable government assistance amounts related
to the activities of Cellex and General Hydrogen, interest related to the Line
of Credit Agreement, and foreign currency exchange gain/(loss).
Interest
and other expense for the three months ended March 31, 2009 was approximately
$296,000, compared to $107,000 for the three months ended March 31, 2008.
Interest expense related to the Credit Line Agreement was $228,000 and $0,
respectively for the three months ended March 31, 2009 and 2008.
20
Income
taxes.
We did not report a benefit
for federal and state income taxes in the condensed consolidated financial
statements for the three months ended March 31, 2009 and 2008 as the
deferred tax asset generated from our net operating loss has been offset by a
full valuation allowance because it is more likely than not that the tax
benefits of the net operating loss carry forward will not be realized.
Liquidity and
Capital Resources
Our
cash requirements depend on numerous factors, including completion of our
product development activities, our ability to commercialize our energy
products, market acceptance of our systems and other factors. We expect to
devote substantial capital resources to continue our development programs
directed at commercializing our energy products for worldwide use, hiring and
training our sales and service staff, developing and expanding our
manufacturing capacity and continuing to expand our research and development
activities. We expect to pursue the expansion of our operations through
internal growth and strategic acquisitions and expect that such activities will
be funded from existing cash, cash equivalents, trading securities,
available-for-sale securities, and the issuance of additional equity or debt
securities or additional borrowings subject to market and other conditions. The
failure to raise the funds necessary to finance our future cash requirements or
consummate future acquisitions could adversely affect our ability to pursue our
strategy and could negatively affect our operations in future periods. We
anticipate incurring substantial additional losses over at least the next
several years and believe that our current cash, cash equivalents, trading
securities and available-for-sale securities balances will provide sufficient
liquidity to fund operations for at least the next twelve months.
Several key indicators of liquidity are summarized in
the following table:
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
Three
months
ended or at
March 31,
2009
|
|
Three
months
ended or at
March 31,
2008
|
|
Year
ended or at
December 31,
2008
|
Cash and cash equivalents at end of period
|
|
$
|
15,998
|
|
$
|
51,755
|
|
$
|
80,845
|
Trading securities auction rate debt securities at end of period
|
|
|
55,701
|
|
|
|
|
|
52,651
|
Available-for-sale securities at end of period
|
|
|
72,717
|
|
|
95,013
|
|
|
23,844
|
Working capital at end of period
|
|
|
80,679
|
|
|
145,455
|
|
|
86,171
|
Net loss
|
|
|
8,157
|
|
|
20,728
|
|
|
121,700
|
Net cash used in operating activities
|
|
|
12,807
|
|
|
15,493
|
|
|
56,596
|
Purchase of property, plant and equipment
|
|
|
15
|
|
|
570
|
|
|
1,419
|
Included
in trading securities and working capital at March 31, 2009 and December
31, 2008 and in available-for-sale securities and working capital at March 31,
2008, respectively, is $55.7 million, $52.7 million and $60.1 million of
auction rate debt securities. The auction rate debt securities are secured by
student loans which are generally guaranteed by the Federal government. These
auction rate debt securities are structured to be tendered at par, at the
investors option, at auctions occurring every 27-30 days. However, due to the
liquidity issues in the credit and capital markets, the market for auction rate
debt securities began experiencing auction failures in February 2008, and there
have been no successful auctions for the securities held in our portfolio since
the failures began. We continue to receive interest on these securities,
subject to an interest rate cap formula for each security as periodically
adjusted in accordance with the respective securities agreement. At
March 31, 2009, the interest rates ranged from 0% to 13.0% on the auction
rate debt securities. See Note 10, Credit Line Agreement and Auction Rate Debt
Securities Repurchase Agreement.
21
The
Company has pledged these securities as collateral to a third-party lender for
a Credit Line Agreement (See Note 10, Credit Line Agreement and Auction Rate
Debt Securities Repurchase Agreement) entered into in December 2008. Given the
lack of liquidity in the market for auction rate debt securities, the estimated
fair value of these auction rate debt securities have become lower than their
cost and, based on an analysis of other than temporary impairment factors,
management has determined, beginning in the first quarter of 2008, that this
difference represents a decline in value that is other than temporary.
Accordingly, the Company recorded an other than temporary impairment charge of
$2.8 million for the quarter ended March 31, 2008 in the condensed consolidated
statements of operations.
In December
2008, the Company entered into a Repurchase Agreement with a third-party lender
such that the Company may require the third-party lender to repurchase the
auction rate debt securities pledged as collateral for the Credit Line
Agreement (See Note 10, Credit Line Agreement and Auction Rate Debt Securities
Repurchase Agreement), at their par value, from June 30, 2010 through July 2,
2012. The fair value of the Repurchase Agreement at its origination was $10.2
million and was recorded as income in the 2008 condensed consolidated statement
of operations. The fair value of the Repurchase Agreement at March 31, 2009 was
$7.2 million. The change in fair value of $3.0 million during the quarter ended
March 31, 2009 was recorded as expense in the condensed consolidated statements
of operations which is offset by the change in fair value of the auction rate
debt securities held as collateral of $3.0 million that is recorded as income.
We
continue to monitor the market for auction rate debt securities and will be
required to mark the securities to fair value which could negatively affect our
financial condition, liquidity and reported operating results. We will also be
monitoring and marking to fair value the auction rate debt securities
repurchase agreement. The Company expects that the fair value adjustments
of the auction rate debt securities will generally be offset by the fair value
adjustments of the auction rate debt securities repurchase agreement.
In
May 2008, the Company filed a lawsuit against UBS Financial Services Inc. and
UBS AG in the United States District Court, Northern District of New York, the
financial advisor that placed the Company in certain auction rate debt
securities held in the Company's investment portfolio. The lawsuit sought a
return of the $62.8 million of Company funds UBS invested in auction rate debt
securities in contravention to the Company's investment policy, among other
damages.
On
December 15, 2008, Plug Power Inc. (Plug or the Company) accepted an offer
by UBS AG (UBS) of certain rights to cause UBS to purchase, at a future date,
auction rate debt securities owned by the Company. The repurchase rights are
offered in connection with UBSs obligations under settlement agreements with
the U.S. Securities and Exchange Commission and other federal and state
regulatory authorities. The offering, the settlement agreements, and the
respective rights and obligations of the parties, are described in a prospectus
issued by UBS dated October 7, 2008, File No. 333-153882 (the
Prospectus). As a result of accepting UBSs offer, the Company can require UBS
to repurchase at par value all of the auction rate debt securities held by the Company
at any time during the period from June 30, 2010 through July 2, 2012
(if the Companys auction rate debt securities have not previously been sold by
the Company or by UBS on its behalf), and pending litigation between the
parties has been dismissed with prejudice.
In connection with the Prospectus offering, the
Company also entered into a loan agreement with UBS Credit Corp. that provides
the Company with a credit line of up to $62.875 million with the Companys
auction rate debt securities pledged as collateral. The Company has drawn down
the full amount of the credit line. In accordance with the offering by UBS, the
loan will be treated as a no net cost loan as defined in the Prospectus. The
loan will bear interest at a rate equal to the average rate of interest paid to
Plug Power on the pledged auction rate debt securities such that the net
interest cost to Plug Power will be zero. Though the loan is payable on demand,
if UBS Credit Corp. should exercise its right to demand repayment of any portion
of the loan prior to the date the Company can exercise its repurchase rights,
UBS and certain of its affiliates will arrange for alternative financing on
terms and conditions substantially the same as those contained in the loan.
If alternative financing cannot be established, then UBS or one of its
affiliates will purchase the Companys pledged auction rate debt securities at
par. As a result, the loan and any alternative financing will not be payable by
the Company prior to the time that the Company can require UBS to repurchase
the pledged auction rate debt securities. Proceeds of sales of the Companys
auction rate debt securities will first be applied to repayment of the credit
line with the balance, if any, for the Companys account. UBS has previously
provided investment management services for a portion of the Companys
investment portfolio.
22
Our
cash requirements depend on numerous factors, including completion of our
product development activities, ability to commercialize our fuel cell systems,
market acceptance of our systems and other factors. We expect to pursue the
expansion of our operations through internal growth and strategic acquisitions.
As of March 31, 2009, we had cash and cash equivalents of $16.0 million,
trading securities of $55.7 million, available-for-sale securities of $72.7
million and working capital of $80.7 million.
During
the three months ended March 31, 2009, cash used for operating activities
was $12.8 million, consisting primarily of a net loss of $8.2 million offset,
in part, by non-cash expenses in the amount of $2.0 million, including $1.4
million for amortization and depreciation, $469,000 for stock based
compensation, and $70,000 in bad debt expense. Cash used in investing
activities for the three months ended March 31, 2009 was $53.2 million,
consisting of $48.9 million of maturities, net of purchases, of
available-for-sale securities, offset by $15,000 used to purchase property,
plant and equipment, $2.5 million used as an investment in leased property, and
$1.8 million in restricted cash. Cash provided by financing activities for the
three months ended March 31, 2009 was $1.2 million consisting primarily of
proceeds from borrowings of long term debt of $1.7 million offset by $503,000
for the purchase of treasury stock.
We
have financed our operations from inception through March 31, 2009
primarily from the sale of equity (including those related to stock-based
compensation), which has provided cash in the amount of $634.9 million since
inception. Also since inception. cumulative net cash used in operating
activities has been $467.1 million, and cash used in investing activities has
been $208.1 million, including our purchase of property, plant and equipment of
$38.4 million, our net investments in available-for-sale securities in the
amount of $135.4 million, and cash used for acquisitions of $19.3 million, net
of cash received.
Critical Accounting
Policies and Estimates
Managements
discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with U.S. generally accepted accounting principles. The
preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities at the date of and during the reporting period. On an on-going
basis, we evaluate our estimates and judgments, including those related to bad
debts, inventories, intangible assets, equity investments, unbilled revenue,
income taxes and contingencies. We base our estimates and judgments on
historical experience and on various other factors and assumptions that are
believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
We
refer to the policies and estimates set forth in the section Managements
Discussion and Analysis of Financial Condition and Results of
OperationsCritical Accounting Policies and Estimates of our Annual Report on
Form 10-K for the fiscal year ended December 31, 2008. There have
been no material changes or modifications to the policies since
December 31, 2008.
Recent Accounting
Pronouncements
A
discussion of recently accounting pronouncements is included in Note 2, Basis
of Presentation of the unaudited condensed consolidated financial statements in
Part I, Item 1 of this Form 10-Q.
23
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We
invest our excess cash in government, government backed and interest-bearing investment-grade
securities that we generally hold for the duration of the term of the
respective instrument. We do not utilize derivative financial instruments,
derivative commodity instruments or other market risk sensitive instruments,
positions or transactions in any material fashion. Accordingly, other than with
respect to auction rate debt securities, we believe that, while the
investment-grade securities we hold are subject to changes in the financial
standing of the issuer of such securities, we are not subject to any material
risks arising from changes in interest rates, foreign currency exchange rates,
commodity prices, equity prices or other market changes that affect market risk
sensitive instruments.
A portion of the Companys total financial performance
was attributable to our operations in Canada. Our exposure to changes in
foreign currency rates primarily arises from short-term inter-company
transactions with our Canadian subsidiaries and from client receivables in
different currencies. Foreign sales are mostly made by our Canadian subsidiary
in Canada and are typically denominated in Canadian dollars. Our foreign
subsidiaries incur most of their expenses in their local currency as well,
which helps minimize our risk of exchange rate fluctuations. Accordingly, the
Companys financial results are affected by risks such as currency
fluctuations, particularly between the U.S. dollar and the Canadian dollar. As
exchange rates vary, the Companys results can be materially affected.
In
addition, the Company may source inventory among its worldwide operations. This
practice can give rise to foreign exchange risk resulting from the varying cost
of inventory to the receiving location as well as from the revaluation of
intercompany balances. The Company mitigates this risk through local sourcing
efforts.
ITEM 4
CONTROLS AND PROCEDURES
(a) Evaluation of
disclosure controls and procedures
As required by Rule
13a-15(b) under the Securities and Exchange Act of 1934, our management,
including the Chief Executive Officer and Chief Financial Officer, conducted an
evaluation as of the end of the period covered by this report, of the
effectiveness of the Companys disclosure controls and procedures as defined in
Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Companys disclosure
controls and procedures were effective as of the end of the period covered by
this report.
(b) Changes in
internal controls over financial reporting
As required by Rule
13a-15(d) under the Securities Exchange Act of 1934, our management, including
the Chief Executive Officer and Chief Financial Officer, also conducted an
evaluation of the Companys internal control over financial reporting to
determine whether any changes occurred during the period covered by this report
that have materially affected, or are reasonably likely to materially affect,
the Companys internal control over financial reporting. Based on that
evaluation, there has been no such change during the period covered by this
report.
PART IIOTHER
INFORMATION
ITEM 1A
RISK FACTORS
Item
1A, Risk Factors of our most recently filed Annual Report on Form 10-K with the
Securities Exchange Commission, filed on March 16, 2009, sets forth information
relating to important risks and uncertainties that could materially adversely
affect our business, financial condition and operating results. Except as set
forth below, there have been no material changes to our risk factors as
described in our most recently filed Annual Report on Form 10-K; however, those
Risk Factors continue to be relevant to an understanding of our business,
financial condition and operating results and, accordingly, you should review
and consider such Risk Factors in making any investment decision with respect
to our securities.
24
The
following Risk Factor has been updated since our most recently filed Annual Report
on Form 10-K:
Our failure to
comply with NASDAQs listing standards could result in the delisting of our
common stock by NASDAQ from the NASDAQ Global Market and severely limit the
ability to sell our common stock.
Our
common stock is currently traded on the NASDAQ Global Market. Under NASDAQs
listing maintenance standards, if the closing bid price of our common stock is
under $1.00 per share for 30 consecutive trading days, NASDAQ will notify us
that we may be delisted from the NASDAQ Global Market. If the closing bid price
of our common stock does not thereafter regain compliance for a minimum of 10
consecutive trading days during the 90 days following notification by NASDAQ,
NASDAQ may delist our common stock from trading on the NASDAQ Global Market.
There can be no assurance that our common stock will remain eligible for
trading on the NASDAQ Global Market. In addition, if our common stock is
delisted, our stockholders would not be able to sell our common stock on the
NASDAQ Global Market, and their ability to sell any of our common stock would
be severely, if not completely, limited.
On October
17, 2008, the NASDAQ Stock Market, citing almost unprecedented turmoil in
U.S. and world financial markets, issued a release temporarily
suspending through January 16, 2009 its continued listing requirements
related to minimum bid price set forth in Marketplace
Rule 4310(c)(4) and market value of shares set forth in Marketplace
Rule 4310(c)(7). On December 19, 2008, the NASDAQ Stock Market extended the
temporary suspension until April 20, 2009. On March 23, 2009, the NASDAQ Stock
Market extended the temporary suspension until July 20, 2009. There can be no
assurance that the temporary suspension of such rules will be extended
beyond July 20, 2009. If the suspension of such rules is lifted, there can be
no assurance that we will be able to maintain compliance with the
listing requirements. On May 4, 2009, the per share price of our common
stock closed at $1.04 on the NASDAQ Global Market. If we are not
able to maintain compliance with such continuing listing requirements
beginning July 20, 2009, our stock may be delisted from the NASDAQ Global
Market, which could have a negative effect on the price of our common stock, as
well as on our ability to raise additional funds.
ITEM 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During
the three months ended March 31, 2009, we issued 171,139 shares of our common
stock in connection with matching contributions under our 401(k)
Savings & Retirement Plan. The issuance of these shares is exempt from
registration under Section 3(a)(2) of the Securities Act of 1933, as
amended.
ITEM 6
EXHIBITS
|
|
|
3.1
|
|
Amended and Restated
Certificate of Incorporation of Plug Power Inc. (1)
|
|
|
3.3
|
|
Amended and Restated
By-laws of Plug Power Inc. (2)
|
|
|
3.4
|
|
Certificate of Amendment to
Amended and Restated Certificate of Incorporation of Plug Power Inc. (1)
|
|
|
31.1 and 31.2
|
|
Certifications pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (3)
|
|
|
32.1 and 32.2
|
|
Certifications pursuant to
18 U.S.C. Section 1350, adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (3)
|
(1)
|
Incorporated by reference
to the Companys Form 10-K for the period ending December 31, 2008.
|
(2)
|
Incorporated by reference
to the Companys current Report on Form 8-K dated June 29, 2006.
|
25
Signatures
Pursuant
to requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLUG POWER INC.
|
|
|
|
|
Date: May 7, 2009
|
|
|
|
By:
|
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/s/ Andrew Marsh
|
|
|
|
|
|
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|
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Andrew Marsh
|
|
|
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Chief Executive Officer
|
|
|
|
|
|
|
|
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|
|
|
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By:
|
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/s/ Gerald A. Anderson
|
|
|
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|
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Gerald A. Anderson
|
|
|
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Chief Financial Officer
|
|
26